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TOTAL Lags on Lower Volume

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Integrated oil and gas company TOTAL S.A. (TOT - Analyst Report) reported fourth-quarter 2012 operating earnings of $1.76 per share (€1.36 per share), falling short of the Zacks Consensus Estimate by 2 cents. Operating earnings of the company were 8% ahead of the year-ago earnings of $1.62 (€1.20 per share).

Total’s 2012 operating earnings were $7.01 per share (€5.45 per share), down 5% from $7.05 per share (€5.06 per share) reported in 2011. The results of the company were a dime lower than the Zacks Consensus Estimate of $7.11.

Total Revenue

Total revenue was $64.66 billion (€47.86 billion), up 1% from $64.02 billion (€47.49 billion) in the year-ago quarter.

TOTAL reported full year 2012 revenue of $257.03 billion (€200.06 billion) versus $257.09 billion (€184.69 billion) in 2011. The revenue in 2012 was in line with the prior-year period (up 8.0% in euros).

Production and Realized Price

Total hydrocarbon production during the fourth quarter 2012 averaged 2,293 thousand barrels of oil equivalent (kboe) per day, down 4% year over year. Output during the quarter was negatively impacted by the ongoing security conditions in Africa, accidents in U.K., flooding in Nigeria and normal declines and maintenance outages.

Total hydrocarbon production during 2012 averaged 2,300 kboe per day, down 2% from 2011 levels. The factors which affected the fourth quarter production also impacted the annual production level, and the changing prices of hydrocarbon also impacted production volumes.

Liquids production during the quarter averaged 1,206 thousand barrels (MBbls) per day, down 3% year over year. For 2012, liquids production averaged 1,220 MBbls per day, in line with the prior year. Liquid production got a beating in Europe, which pulled down the overall production level.

Gas production during the quarter was 5,897 thousand cubic feet (Mcf) per day, down 5% year over year and for 2012 was 5,880 thousand cubic feet (Mcf) per day, down 4% year over year. Gas volumes were impacted by a poor performance from the majority of its producing areas while strong performance from the CIS region marginally offset the decline.

Total refinery throughput for 2012 was 1,786 MBbls per day versus 1,863 MBbls per day in 2011. The yearly decline was mainly due to the shutdown of the Normandy refinery and closure of the Rome refinery in the third quarter.

The realized price for Brent in 2012 was $111.7 per barrel versus $111.3 per barrel in 2011. The average realized liquid price increased 3% to $107.7 per barrel from $105 per barrel in 2011.

Realized gas prices for 2012 increased 3% year over year to $6.74 per Mbtu. Realized hydrocarbon prices in 2012 increased to $77.3 per barrel of oil equivalents (boe) from $74.9 in 2011.

Financial Update

Cash and cash equivalents of TOTAL as of December 31, 2012, were $20.4 billion (€15.46 billion) versus $18.2 billion (€14.02 billion) at 2011 end.

The net debt-to-equity ratio was 21.4% at the end of 2012 versus 23.0% at the end of 2011.

TOTAL’s cash flow from operation at the end of 2012 was $28.85 billion, up 6.0% from the 2011 level of $27.19 billion.

Sale and Purchase of Assets

During 2012, TOTAL made acquisitions worth $4.0 billion (€3.1 billion). The investments were made to acquire interest in exploration and production licenses in Uganda, an additional interest in Novatek, minority interest in Fina Antwerp Olefins and carry agreement in the Utica basin in the US.

In 2012, TOTAL disposed of assets worth $5.9 billion (€4.6 billion), comprising of the sale of TOTAL’s remaining interest in Sanfoli, upstream assets in Nigeria, a portion of the Gassled pipeline in Norway, and interest in Pec-Rhin and Geostock in France.

TOTAL’s net investment in 2012 was $21.9 billion, down 1% from $22.2 billion in 2011 due to lower acquisition expenses in the reported period.

2013 Preview

The net investment budget for TOTAL in 2013 is $22 billion, more or less at par with the two preceding years. The organic investment plan is $28 billion out of which 80% is earmarked for the Upstream segment.

The exploration budget for 2013 is $2.8 billion, with new drilling planned in Ivory Coast, Gabon, Kenya and Brazil.

TOTAL’s strategy is to increase its production level by 3% on average every year in the 2011- 2015 period. The company expects its 2013 production to be driven by the start-ups in 2012 and 2013, including Anguille in Gabon, Angola LNG, Kashagan in Kazakhstan, and the extension of OML in Nigeria.

TOTAL continues to perform well and leverage its strong financial position. The aggressive exploration strategy alongside acquisition of new drilling licenses aids the company to add to its reserve base. The proved reserve of 11,368 Mboe for 2012 represents two decades of reserve life based on the current production level of the company.

However, the company has been plagued by the ongoing economic weakness in Europe and the prevailing insecurity in Africa. We remind investors that a substantial portion of the company’s production comes from these regions.

Yet, the company continues to unlock value from its non-core midstream and downstream assets and hive assets on which it has low working assets. The fund generated from divestment will allow the company to concentrate on its core operations. The initiative taken by the company to increase shareholders’ worth is appreciable. TOTAL S.A. retains a Zacks Rank #2 (Buy).

France-based TOTAL is one of the largest publicly traded, globally integrated oil and gas companies based on production volumes, proved reserves and market capitalization. The company has exploration and production operations across five continents.

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